Chemplast Sanmar Ltd, a leading manufacturer of speciality chemicals, has said its custom-manufactured chemical business is expected to record strong growth of 20-25 per cent in this fiscal even as the company expects some headwinds in other businesses in the near term.

“Despite global cues of weakness in the end markets, the enquiries from potential customers of our custom manufactured chemicals division remain robust. To effectively address the growing demand, we continue to enhance our capabilities. Overall, this business is on track to achieve 20-25 per cent growth this year,” Ramkumar Shankar, MD of the company said during the company’s Q2FY24 earnings call.

With the recent signing of the 3rd LOI (letter of intent) with a global agrochemical innovator to manufacture a new pipeline active ingredient (AI), the company sees strong visibility with respect to steady-state capacity utilisation of the new production block and is on track to achieve ₹1000 crore revenues from this business in the next 3-4 years.

Phase 1 of the new multi-purpose production block, which was inaugurated in Q2 of this fiscal at Berigai in Tamil Nadu for the Custom Manufactured Chemicals business, has been commissioned and is being ramped up i.e., Phase 2 of the project is expected to be commissioned by the end of this fiscal. The company has planned a capex outlay of ₹680 crore for these expansions, which will increase the division’s capacity to about 4500 MTPA from 1068 MTPA.

Deliveries of the 2 molecules for which LOIs have been signed in the recent past will commence in the second half of this year.

Company’s performance

Meanwhile, the company’s performance in Q2 of this fiscal was relatively better than the preceding quarter. While the top line was flat, EBITDA was back in the black.

Shankar said the recovery in the PVC business will be gradual over the next 2 or 3 quarters. The imports of both suspension and paste PVC witnessed an increasing trend towards the end of Q2 with a surge in imports from China. The trend is continuing in this quarter as well, which is resulting in some correction in prices in October “While PVC prices have started moving up again from the end of October, the scale of the drop in the early part of October will impact our margins in Q3,” he added.

The chemical industry is experiencing a phase of broad-based weakness globally and as a result of the same, other chemicals division, which comprises caustic soda, chloromethanes, hydrogen peroxide and refrigerant is facing pricing pressures.

Recovery in prices

Prices of both caustic soda and chloromethanes witnessed further correction in Q2 when compared with Q1. “There are some initial signs of recovery in prices and we expect normalcy to be restored in the next 2-3 quarters. On the suspension PVC side, we observed a similar trend in terms of pricing as witnessed in paste PVC. The overall demand, however, continues to be strong,” he said.

The paste PVC capacity expansion, which will see an addition of 41,000 tonnes, will be commissioned in Q3 of FY24. With this expansion, the total capacity will increase to 107,000 tonnes.

For this fiscal, the company has planned a project capex of about ₹744 crore as against ₹296 crore in FY23.

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